Reflecting on “Reflections” – A review of Mah Bow Tan’s book (Part 4 of 9)

March 26, 2011

In Part Four (“Buying a flat? Choose wisely”), the Minister for National Development wrote:

“Average household incomes have also increased almost four times over the same period, from $1,500 in 1987 to $5,700 in 2008”

We should be using the median income when we are talking about the affordability of HDB flats, instead of average household incomes.

In this connection, the median household income from work of Chinese, Malays, Indians and others grew by 6.6, 3.6, 4.6 and 4.3 per cent per annum, respectively, from 2000 to 2010.
Against this, the HDB Resale Price Index grew by about 6.7 per cent per annum, from 2001 to 2010.

So, perhaps for a lot of Singaporeans, their incomes may not have been able to catch up with the rising HDB prices, over the last nine years or so.

Since median income is half the population of households, particularly lower income households may have found the affordability of HDB flats an increasing issue, especially in the last four years, when HDB prices rose by about 66 per cent.

Private developers sell public housing?

“To provide greater choice and variety of higher income buyers, HDB allowed private developers to participate in public housing projects, first through the Executive Condominium (EC) Housing Scheme in the 1990s, and later through the Design, Build and Sell Scheme (DBSS) in the 2000s”

This fundamental departure in housing policy from the HDB’s original mission to provide affordable public housing to ordinary (lower income?) Singaporeans, may have been a major contributing factor to rising HDB flat prices.

This is because every EC or DBSS flat that is built at much higher prices than HDB flats, may push up overall HDB prices, as well as reducing supply on a relative basis, as there are trade-offs between building EC and DBSS versus HDB, in land scarce Singapore.

I understand that for about five years prior to 2010, there were almost no EC launches.

Why was this so?

Was it because the HDB refused to lower land prices, such that no developer found it viable to build ECs for about five years?

Wrong type of flats?

“With economic growth becoming more volatile in the late 1990s and 2000s, HDB resumed the building of three-room flats in 2001 and two-room flats in 2006. These flats provided options for lower income households and those wanting to right-size their homes as they age”

This may have been poor planning by the HDB, in assuming that the demand would be for bigger flats.

Otherwise, how do you explain what I understand to be that two and three-room flats, have had the highest rate of increase in prices, in recent years?

In this regard, prices for three-room BTO flats at the latest Compassvale Ancilla in Sengkang, in March, start from a whopping $194,000!